Drexel Workers Sue Firm Over Sale Plan : Brokers Claim Divestiture of Retail Unit Will Cost Them Millions

Three Drexel Burnham Lambert employees are suing the investment banking firm over its plans to sell its retail brokerage business.

In a class-action suit filed Monday in New York State Supreme Court in Manhattan, the three workers charge Drexel’s top managers with breach of contract and violations of their fiduciary duties because of the planned divestiture.

The suit contends that the sale of the unit will cost the brokers millions of dollars because they will be forced to sell their Drexel stock for far below its true value. The price of the stock is based on book value, which the suit did not disclose.

Concentrate on Core Business

According to the suit, Drexel has understated the book value of its assets, including warrants and options it has received in some deals in lieu of partial payment of fees.

Drexel spokesman Steven Anreder told the New York Times that the firm had not studied the suit and had no comment.

Last week--just days after Drexel announced a settlement on charges of securities fraud with the Securities and Exchange Commission--the firm announced plans to sell its retail business, which sells stocks and other securities to individuals. The move is designed to let Drexel concentrate on its core businesses of investment banking and high-yield “junk bonds,” a business directed out of the firm’s Beverly Hills office. It also would cut about one-third of Drexel’s work force.

Late Monday, Drexel was said to be close to reaching an agreement to divide up and sell its retail operation to Smith Barney, Harris Upham & Co. and at least one other securities concern. Sources said Smith Barney, a unit of Primerica Corp., will buy some of Drexel’s 42 retail offices.

Prudential-Bache Securities and Dean Witter Reynolds were among the firms also rumored to be bidding for some of Drexel’s offices.